This site is no longer maintained. My current site is available at http://www.gmetrail.com

The views and comments expressed on this site are my own and do not necessarily represent my employer’s positions, products, strategies or opinions.

Unfounded rumor: iPhone 2 will be unlocked

OK, we are about 3 weeks (my guesstimate) of knowing what will really happen with the iPhone 2, which is widely expected to be announced at the WWDC conference. Over the last few weeks, more and more mobile operators around the world have announced the upcoming availability of the cell phone from Apple on their network in many different countries (the iPhone blog has a good summary post). Looking as this list getting longer and longer almost every day, this can only mean one thing in my mind: the iPhone 2.0 will be unlocked.

Update (June 10, 2008): OK, my unfounded rumor was completely wrong… that must be why it was unfounded 😉

With the iPhone 1.0, Apple introduced a brand new business model for the mobile phone operators. Instead of massively subsidizing the devices, locking in the users for a multi-year period and keeping all the revenue, the new approach was to charge full price for the phone and then get a revenue share of the subscription. Not only did this provide a high perceived value by the end users as they had to pay for it (normal cell phones are considered “free” or at least “cheap”), but it also opened up a brand new revenue stream for Apple in addition to the one from the sale of the hardware… But to achieve this, it required the phone to be locked and only available to the mobile phone operators who agreed to the revenue share. Great model, except that the hacker community didn’t like AT&T or didn’t live in the USA and took this as a great challenge. They were able to defeat the mechanisms in place on an ongoing basis… I for example used ZiPhone to unlock my iPhone and use it on the Fido network (a fully owned subsidiary of Rogers) here in Canada without any problem.

So why would Apple go ahead with an unlocked iPhone and how could they protect the ongoing payment from the mobile operators, which enable them to double the revenue per device according to the estimates?

Regarding the why, my guess is that the adoption rate from operators around the world hasn’t been at the level that Apple had hoped, resulting in lower than forecasted unit sales of the iPhone. In addition, now that the Cupertino company has realized that you cannot win the fight against hackers (very similar to the intentional pirates in the software world, but that’s for another blog post), it has added cost to the development and had negative impact on the user experience with the brand and device to the reason why to unlock the device… With revenue soon to come from the distribution of third-party applications, having as many devices as possible out there is certainly a very attractive value proposition.

Regarding the how to protect the revenue stream, the answer is in the software. No, not in the software of the iPhone itself, much more in the software that is implemented by the mobile operator to deliver specific services for the device from Apple, which will be a lot harder to hack or pirate. For example, I don’t have (currently) visual voice mail in Canada. Now that’s certainly not a killer feature for me and I can live without it, but what if the iPhone 2.0 was to add more of these “unique” features that require to be on a network which provides a revenue share to Apple. A few examples that come to my mind are visual chats between iPhone users, instant messaging (remember, rumor has it that this will be one type of app that won’t be allowed to be developed by third-parties), or an access to your iDisk (hey, there are rumors of updating .Mac in sync with the WWDC iPhone announcement, so why not). Basically any feature that won’t be available on the iPod touch could require a subscription with an Apple approved mobile network operator (e.g. one who provides a revenue share to Apple).

And the good thing is that this “how” would also work in countries where iPhone 1.0 where introduced, except that there will most certainly not be other operators who will be able to offer Apple’s cell phone and won’t have the service. Finally, with the latest rumors about Rogers offering an attractive data plan price according to Electronista (at least for the HTTP protocol), looks like I will need to change mine for a new one soon.

OK, I know this is a stretch, but as mentioned in the title, this is a completely unfounded rumor that I just made out of thin air. If you don’t agree with my logic, feel free to let me know 😉